Sharekhan Blog

Top 5 Features Of Equity Market

  • Jul 24, 2023

There are several kinds of shares, including equity shares and preference shares. This page aims to provide a better understanding of equity shares and their features.

What are equity shares?

A firm dilutes its ownership by issuing stock shares to obtain finance. To acquire partial ownership of the company, investors might purchase equity share units. Investors will become shareholders in the firm and contribute to its total capital by acquiring equity shares.

By the shares they own, equity shareholders are the true proprietors of the business. Investors who invest in stocks gain from dividends and capital growth. In addition to financial rewards, stock investors have voting rights in important corporate decisions. Obtaining money for development and growth is the main justification for issuing equity shares. Through an Initial Public Offering, the company issues equity shares to the general public (IPO). A primary market offering is an IPO. By subscribing to the IPO, you can subscribe for the share. As soon as the stocks are allocated and listed on the stock exchange, you may easily trade them. Popular stock exchanges in India include the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Profits are distributed to equity stockholders. Most well-known, large-cap corporations reward their shareholders with dividends and incentives. The face value or book value of an equity share determines its worth. The price of a company's shares will increase as more individuals purchase them. While prices will decrease if more individuals are selling. When the shares begin trading on the exchange, the prices are set by supply and demand. Investors want to invest in a firm if they believe that its growth prospects are favourable so that they may gain from capital growth. In a similar vein, investors would seek to sell their stakes if the firm was underperforming. They, therefore, sell their assets.

Features of equity shares

Compared to saving, investing has a larger risk but offers better returns and, when done correctly, accelerates the achievement of financial objectives. For businesses wanting to finance their operations, equity shares are seen as a long-term funding alternative. There are several benefits and advantages available to preference shareholders.

Electoral rights

The ability to vote in elections for general managers and other company officials as well as have a say in business decisions is arguably the biggest benefit of owning equity shares. This is because the company's operations directly affect the returns that equity shareholders receive from the company. You are also given a significant number of voting rights if you own a significant number of equity shares.

Entry fees for meetings

A seat at any annual and/or general body meetings of the corporation is made available to equity shareholders, and their voting rights also give them a voice in the family's business decisions.

Paying dividends

Dividend shares are also available to equity shareholders. However, there is a distinction between the advantages ordinary stockholders enjoy and those who own preference shares in this area. Dividend payments to equity owners are not fixed and may change according to the company's performance and the achievement of specified objectives. Equity stockholders are therefore entitled to dividend payments, although these payments are not promised. Dividend payments, however, are set for preference stockholders.

Liquidity

Investments in equity shares are quite liquid. The stock exchanges are where shares are traded. The share is therefore available for purchase and sale at any moment during trading hours. Consequently, one should not be concerned about selling their stock.

Small Liability

The common stockholders are unaffected by a company's losses. In other words, the shareholders are not responsible for the debt obligations of the business. The price of equities is down, and that's the only consequence. The return on investment for a shareholder will be impacted by this.

Many corporations solely issue common stocks, and more common stocks than preferred stocks are traded on exchanges. Ordinary investors, however, are given the lowest priority when it comes to receiving any of their money back when a firm collapses. Priority is given to repaying lenders of capital to the business. The holders of preferred stocks are paid last, even if there is any money left over after paying the creditors. There is a maximum quantity for this. Common investors are only paid out if there is any money left over after that.



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